Using Information Systems

to Achieve Competitive
Advantage
 What is Strategy?
• Competitive moves and business
approaches management employs in
running a company
• Management’s “game plan” to
– Please customers
– Position a company in its chosen market
– Compete successfully
– Achieve good business performance

A. Thompson, Jr. & A. J. Strickland, (1998)I

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 Strategy
– A plan designed to help an organization outperform its
competitors
• A best response counteracting to the competitor’s reactions
– As a plan : a guide or course of action toward the goal
and into the future
– As a pattern: consistency in behavior/decision over time
– As a positioning: determining the particular value
proposition in a particular market segment
– As a perspective: a concept of shaping the business
– As a ploy: a specific maneuver intended to outwit an
opponent

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Strategic and Competitive Advantage
– Strategic advantage:

• Using a strategy to maximize strength/seek

monopolistic rents

– Competitive advantage:

• The result of the use of a strategic advantage

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 Strategic Information Systems
• An IS that helps achieve long-term competitive
advantage
• A strategic information system is
– Any kind of information system
– That uses IT to help an organization
• Gain a competitive advantage
• Reduce a competitive disadvantage
• Or meet other strategic enterprise objectives

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 The Strategic Landscape
• Managers confront elements that influence the
competitive environment.
• Managers must take multiple view of the strategic
landscape, such as:
– First view - Porter’s five competitive forces model.
– Second view - Porter’s value chain.
– Third view – focuses on the types of IS resources needed
(Resource Based View).

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 Using Information Resources to Influence
Competitive Forces
• Porter’s five forces model show the major forces that
shape the competitive environment of the firm.
1. Threat of New Entrants: new firms that may enter a companies market.
2. Bargaining Power of Buyers: the ability of buyers to use their market
power to decrease a firm’s competitive position
3. Bargaining Power of Suppliers: the ability suppliers of the inputs of a
product or service to lower a firm’s competitive position
4. Threat of Substitutes: providers of equivalent or superior alternative
products
5. Industry Competitors: current competitors for the same product.

See Figure Next Slide.

If a business wants to succeed must develop

strategies to counter these forces
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Figure 2.3 Five competitive forces with potential
strategic use of information resources.

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Competitive Forces and Strategies

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 Five Competitive Strategies
• Cost Leadership
– Become low-cost producers
– Help suppliers or customers reduce costs
– Increase cost to competitors
e.g. Walmart
– Inventory replenishment system sends orders to suppliers when purchase recorded at
cash register
– Minimizes inventory at warehouses, operating costs.
– Efficient customer response system.
• Differentiation Strategy
– Develop ways to differentiate a firm’s products from its
competitors
– Can focus on particular segment or niche of market
 e.g., Google’s continuous innovations, Apple’s iPhone.

 Use information systems to customize, personalize products to fit specifications of

individual consumers.
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 Competitive Strategies (cont.)
• Innovation Strategy
– Find new ways of doing business
• Unique products or services
• Or unique markets
• Radical changes to business processes to alter the fundamental
structure of an industry
– Example, Amazon uses online full-service customer systems
• Growth Strategy
– Expand company’s capacity to produce
– Expand into global markets
– Diversify into new products or services
– Example, Wal-Mart uses merchandise ordering by global
satellite tracking

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 Competitive strategies (cont.)
• Alliance Strategy
– Establish linkages and alliances with
• Customers, suppliers, competitors, consultants and
other companies
– Includes mergers, acquisitions, joint ventures,
virtual companies
– Example, Wal-Mart uses automatic inventory
replenishment by supplier

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Using IT for these strategies

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 Other competitive strategies
• Lock in customers and suppliers
– And lock out competitors
– Deter them from switching to competitors
– Build in switching costs
– Make customers and suppliers dependent on the use
of innovative IS
• Barriers to entry
– Discourage or delay other companies from entering
market
– Increase the technology or investment needed to
enter

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 Other competitive strategies (cont.)

• Include IT components in products

– Makes substituting competing products more
difficult
• Leverage investment in IT
– Develop new products or services not possible
without IT

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 Using these strategies
• The strategies are not mutually exclusive
• Organizations use one, some or all

• Some companies pursue several strategies at

same time.
 Dell emphasizes low cost plus customization of
products.
• Successfully using IS to achieve competitive
advantage requires precise coordination of
technology, organizations, and people.

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 Many strategic Moves can work together to achieve a
Competitive Advantage

Management 17
 Value Chain
• View the firm as a chain of basic activities that
add value to its products and services
• Activities are either
– Primary processes directly related to manufacturing
or delivering products
– Support processes help support the day-to-day
running of the firm and indirectly contribute to
products or services
• Use the value chain to highlight where
competitive strategies can best be applied to add
the most value

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Using IS in the value chain

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 Value Chain (contd.)
• Inbound Logistics: raw materials brought into
the company
• Operations: any part of the business that
converts raw materials into products and
services
• Outbound Logistics: Getting the products
and services to the customers.
 Value Chain (contd.)
• Sales/Marketing: Entire buyers to purchase
products and services.
• Service: Support of products and services that
customers have purchased.
• Firm Infrastructure: All the organizational
functions that support the business.
Technology connected/supported.
• Human Resources Management: Recruiting
hiring, and retaining employees.
 Value Chain (contd.)
• Technology Development: Advances and
innovations adopted to add value to the
company.
• Procurement: Acquiring raw materials for
production/operations.
Extending the Value Chain: The Value Web

• A firm’s value chain is linked to the value chains of

its suppliers, distributors, and customers.
• A value web is a collection of independent firms
that use information technology to coordinate their
value chains to produce a product collectively.
• Value webs are flexible and adapt to changes in
supply and demand.
 The Value Web

The value web is a

networked system that
can synchronize the
value chains of
business partners
within an industry to
respond rapidly to
changes in supply and
demand.
Competing on Quality and Design

Customer-focused business
• What is the business value in being customer-
focused?
– Keep customers loyal
– Anticipate their future needs
– Respond to customer concerns
– Provide top-quality customer service
• Focus on customer value
– Quality not price has become primary
determinant of value
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 How can we provide customer value?

• Track individual preferences

• Keep up with market trends
• Supply products, services and information
anytime, anywhere
• Provide customer services tailored to
individual needs
• Use Customer Relationship Management
(CRM) systems to focus on customer
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Building customer value using the Internet

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 Competing on Quality and Design
How Information Systems Improve Quality

• Reduce cycle time and simplify production

process.
• Benchmarking
• Use customer demands to improve products and
services.
• Improve design quality and precision.
• Computer-aided design (CAD) systems
• Improve production precision and tighten
production tolerances.
 Competing on Quality and Design

Computer-aided
design (CAD) systems
improve the quality
and precision of
product design by
performing much of
the design and testing
work on the computer.
Sustaining Competitive Advantage

 Because competitors can retaliate and copy strategic systems,

competitive advantage is not always sustainable; systems may
become tools for survival

• Performing strategic systems analysis

• What is structure of industry?
• What are value chains for this firm?

• Managing strategic transitions

• Adopting strategic systems requires changes in
business goals, relationships with customers and
suppliers, and business processes
 Re-engineering and Organizational
Change
• To implement an SIS and achieve a competitive
advantage, organization must rethink entire
operation
• Goal of re-engineering
– Remove the process bottleneck, the key dead logs
– Achieve efficiency leaps of 100% or higher

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Competitive Advantage as Moving
Target
• SISs developed as strategic advantages quickly become
standard businesses
– Banking industry (ATMs and banking by
phone/Internet)
• Continuous search for new ways of utilizing information
technology to their advantage
– SABRE, American Airlines’ reservation system
enhanced continuously by several functions including
web-based travel site, Travelocity.

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 The Productivity Paradox
• Erik Brynjolfsson (1991) CACM, “The Productivity
Paradox”
• Studies on investment in IT and productivity
showed that gains in productivity were not
realized.
• Why?
– Mismeasurement of outputs and inputs
– Lags due to learning and adjustment
– Redistribution and dissipation of profits
– Mismanagement of information and technology
 Does IT Still Matter?
• “IT Doesn’t Matter” – article by Nicholas
Carr in Harvard Business Review May 2003
– Controversial topic and now available in book
form.
– Bottom line = IT doesn’t matter anymore, at
least not strategically
Nicholas Carr – Harvard Business
Review
• IT is an infrastructure technology, like rail, electricity,
telephone etc.
– Such technology can create a strategic advantage for an
individual firm at the beginning of its life cycle when it is
expensive and risky
• Carr writes, IT is now at the end of build out and is
neither proprietary or expensive
– = A commodity which is available to anyone and won’t give
any individual firm a competitive advantage
 Does IT Still Matter? Nicholas Carr
• Reached the end of its build out:
1. Power of IT now outstrips the needs of business
2. IT prices have dropped = now affordable
3. Capacity of Internet has caught up with demand (fibre surplus)
4. Many vendors want to be seen as utilities
5. Investment bubble has burst
• When an infrastructure technology reaches the end of
its buildout, it simply becomes a cost of doing business

• Although IT is necessary for competitiveness,

Competitive advantage comes from the firm’s business
model
 Does IT Still Matter? Nicholas Carr .

• Management of IT should become

“boring” focussing on:
1. Manage the risks
– Focus on vulnerabilities (which are more common
with open systems) rather than opportunities
2. Keep costs down
– Overspending is the greatest risk, so only pay for
use and limit upgrading
• Don’t update PCs when not needed
Does IT Still Matter? Nicholas Carr .
3. Stay behind the technology leaders
– But not too far behind!
• Delay investments until there are standards and
best practices and prices drop
• Only innovate when risks are low
 JetBlue: A Success Story
• Gained competitive advantage where others failed

• Proper technology and management methods

– Reservation system, Electronic ticket, ticketless traveling

service, revenue analysis for route management

• Reducing costs resulting in lower prices

• Improving service—on-time departures and arrivals

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 JetBlue: A Success Story (Cont.)
• Massive Automation, continued

– Electronic tickets

• No paper handling or expense

• Encourages online ticket purchases

• Avoids travel agents

• Significant savings in cost

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 JetBlue: A Success Story (Cont.)

• Massive Automation, continued

– Maintenance information system
• Logs all airplane parts and time cycles
• Reduces manual tracking costs

– Flight planning software

• Maximize seats occupied on a flight
• Reduced planning costs

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 JetBlue: A Success Story (Cont.)
• Massive Automation, continued

– Blue Performance

• In-house software for tracking operational data

• Updated on a flight by flight basis for maximizing yield

• Accessible by airline’s 2,800 employees

– Managers are able to respond immediately to problems

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 JetBlue: A Success Story (Cont.)
• Massive Automation, continued
– Wireless devices for employees
• Report and respond to irregular events
• Quick response
• Events recorded for future analysis
– Training records stored electronically
• Easy to update
• Efficient retrieval

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 JetBlue: A Success Story (Cont.)
• Away from Tradition

– Decision to not use the hub and spoke routing

method

– Paperless Cockpits

– Laptops for Pilots

– Harnessing IT to maintain a strategic gap

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 JetBlue: A Success Story (Cont.)
• Enhanced Service
– Available on all flights and all class tickets
• Live TV through contract with DirecTV
• Leather Seating
• Excellent on-schedule arrivals and departures
• Fewest mishandled bags
• Rapid check-in time
• Security upgrades

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 JetBlue: A Success Story (Cont.)
• Impressive Performance

– Maintains excellent statistics

• 7 cent cost per available seat-mile (CASM) lesser than the

industrial average

• 78% of seats are filled higher than the industrial average

• Late Mover Advantage

• New Technology vs. legacy systems

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 Ford on the Web: A Failure Story
• The Ideas
– Wingcast telematics
• Technology in vehicles to enable Web access
– Business to Business: Covisint
• Joint venture with General Motors and
DaimelerChrysler
• Electronic market for parts suppliers
• Vendor bidding for proposals from automakers

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Ford on the Web: A Failure Story (Cont.)

• The Ideas (cont.)

– Business to Consumer: FordDirect.com
• Sell vehicles direct to consumers via the Web
• Bypass dealerships
• Provide service while saving dealer fees
• ConsumerConnect
– Special unit to build Web site and handle direct sales

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Ford on the Web: A Failure Story (Cont.)

• Hitting the Wall

– Wingcast: Failed
• Buyers not interested (as the failure of WAP)
• Product eliminated in June 2001

– Covisint: Successful
• Now includes more automakers, Renault and Nissan

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Ford on the Web: A Failure Story (Cont.)
• Hitting the Wall

– FordDirect.com: Failed

• Not a result of faulty technology

• Ford failed to consider state laws and dealership

relationships

• Dealership relationship was still needed for purchases

not on the Web

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Ford on the Web: A Failure Story (Cont.)

• The Retreat
– ConsumerConnect disbanded
– FordDirect.com used by dealerships now
• Sells used cars
– Price tag for failure: $1 billion
– FordDirect.com today results in 10,000 vehicle per
month, and 100,000 sales in 2001

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 Success and Failure on the Web
• Being first is not enough for success

• Business ideas must be sound

– An organization must carefully define what buyers

want

– Establishing a recognizable brand name is important

but does not guarantee success; satisfying needs is
more important

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 The Bleeding Edge
• Business owners must develop new features to keep the
system on the leading edge

• Adopting a new technology involves great risk

– No experience from which to learn

– No guarantee new technology will work or customers and

employees will welcome it

– Bet on standard competition

– Wait-and-see hesitation

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 The Bleeding Edge (Cont.)

• The bleeding edge: failure in an organization’s effort to be

on the technological leading edge
– First-mover dis-advantage?

• Allow competitors to assume the risk

– Risk losing initial rewards

– Can quickly adopt and even improve pioneer organization’s

successful technology
• Second-mover advantage?

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 Homework #1: Research on
Amazon vs. eBay
• Please specify the differences of business played
between theses two dotcom giants.
• Compare the sources of profit between these two
firms.
• Analyze the sustainability of competitive
advantage among two.
• Articulate the possible challenges for the future
expansion respectively.

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